Finally, a correct (endgame) difficulty calculator

[Puppet]

A few things;
First of all, bitcoin mining would be perfectly suitable to switch dynamically from one location to another, far easier than any other form of data processing. You are probably thinking it cant because the hardware is so expensive, but thats only temporarily. IN the long run, electricity cost will be far more important than the hardware cost.

Secondly, varying electricity costs over time for a google/facebook/ebay datacenter is something else than for bitcoin. Those companies look at 10+ years to select a location for a major DC, miners currently have an horizon of a few months and I figure, in the future of at most a few years.

Lastly; at least in Iceland they guarantee you the price for up to 20 years.
http://www.greendataisland.com/whyiceland.html

Anyway, the main point is that at current exchange rates, electricity price of all mining really isnt going to make a difference.  So what if you max out a local small hydroelectric plant causing local prices to go up (which would be unlikely already), you will just put your miners somewhere else, or if you dont, someone else will. This is about as "profound" as one particular collocation provider running out of rackspace and therefore increasing its prices. So what?

[jimmothy]

A few things;
First of all, bitcoin mining would be perfectly suitable to switch dynamically from one location to another, far easier than any other form of data processing. You are probably thinking it cant because the hardware is so expensive, but thats only temporarily. IN the long run, electricity cost will be far more important than the hardware cost.

Secondly, varying electricity costs over time for a google/facebook/ebay datacenter is something else than for bitcoin. Those companies look at 10+ years to select a location for a major DC, miners currently have an horizon of a few months and I figure, in the future of at most a few years.

Lastly; at least in Iceland they guarantee you the price for up to 20 years.
http://www.greendataisland.com/whyiceland.html

Anyway, the main point is that at current exchange rates, electricity price of all mining really isnt going to make a difference.  So what if you max out a local small hydroelectric plant causing local prices to go up (which would be unlikely already), you will just put your miners somewhere else, or if you dont, someone else will. This is about as "profound" as one particular collocation provider running out of rackspace and therefore increasing its prices. So what?

Electricity price will make a difference. People taking advantage of energy arbitrage will squeeze all the profit out of mining they can.

I think your equation is pretty accurate but the unpredictable variables like future hardware efficiency, btc exchange rate and large scale mining ops make predicting the end difficulty nearly impossible.

[jmumich]

A few things;
First of all, bitcoin mining would be perfectly suitable to switch dynamically from one location to another, far easier than any other form of data processing. You are probably thinking it cant because the hardware is so expensive, but thats only temporarily. IN the long run, electricity cost will be far more important than the hardware cost.

Secondly, varying electricity costs over time for a google/facebook/ebay datacenter is something else than for bitcoin. Those companies look at 10+ years to select a location for a major DC, miners currently have an horizon of a few months and I figure, in the future of at most a few years.

Lastly; at least in Iceland they guarantee you the price for up to 20 years.
http://www.greendataisland.com/whyiceland.html

Anyway, the main point is that at current exchange rates, electricity price of all mining really isnt going to make a difference.  So what if you max out a local small hydroelectric plant causing local prices to go up (which would be unlikely already), you will just put your miners somewhere else, or if you dont, someone else will. This is about as "profound" as one particular collocation provider running out of rackspace and therefore increasing its prices. So what?

(1) I agree that electricity cost will be far more important, but that does not mean that the hardware cost will be trivial.  And that hardware has to get to the cheap electricity somehow.  That means that there are transportation costs, fuel costs, costs to lease space, costs to move personnel, and that's just a few off the top of my head.  To the extent that hardware moves to cheap electricity, there will still be a cost to move that hardware away.  And this cuts both ways - if the transfer costs are low, that just means that more hardware will move to low cost areas, further driving up demand and thus price.  The real question is the supply of cheap electricity - Bitcoin mining may not have enough of an impact to increase the price of electricity in most areas where price is higher, but, if concentrated, it may impact the price in areas where the price is lower.  

(2) That may be true, but aren't you doing a longer term analysis?

(3)  That's interesting - I did not know that about Iceland - how much electricity will they guarantee for low rates at 20 years?  Are there any restrictions?  

Again, my only point is that, to the extent that bitcoin mining increases to the point where ASICs are a commodity, it is unlikely to benefit from significantly below market electricity prices.  I may very well be wrong - maybe there's a bunch of places with stable internet connections and 1.21 gigawatts of continuous electricity available at $0.02 per kwh.  If that's the case, I'm wrong, I just haven't seen that yet.

[bcmine]

Forget all these history based linear/exponential extrapolations. Now you can actually calculate where bitcoin difficulty is headed.

To be able to calculate that, you need two simple assumptions:
- overall miners are rational and will only keep buying hardware until they reach the point of marginal profitability within a given period (investment horizon).
- Likewise, ASIC vendors will keep producing and selling chips as long as  its profitable, ie, as long as miners are wiling to pay a price above their marginal costs.

To be able to calculate the point where these two cross over, you need to have an idea what the chips cost to produce (and a minimum operational profit margin), and a clear view of costs of the miner.

Fill out your own assumptions by downloading this spreadsheet:
https://docs.google.com/spreadsheet/ccc?key=0ApaVTTCEb_oudGFsUnNuQUVNUGc2Z3VUVmF3ZVBuV2c&usp=sharing

Here are mine, using Hashfasts published numbers:


Feel free to add the cost of casing/PSU/shipping/handling etc in the "per chip" field, Im assuming in the long run these things will be sold bare bones without fancy enclosures and the costs of PCB is negligible and miners already have PSUs or wont factor in that cost given they have decent resale value. Feel free to alter those assumptions.

Also note the investment horizon should NOT be compared to today, when difficulty is growing explosively. This spreadsheet calculates the "end game" where difficulty remains fiarly stable, or at least is only really influenced by BTC exchange rate and perhaps mining fees. In such environment, an investment horizon of a few years is entirely reasonable.

Finally, I did make a shortcut in the formula to calculate the cost of these chips. To accurately calculate that based on die size and wafer size, you need a special tool:
http://www.silicon-edge.co.uk/j/index.php?option=com_content&view=article&id=68

My formula uses the correct numbers for hashfasts chip size (177 candidates for a 18mmx18mm chip), but I simply extrapolate linearly for bigger or smaller chips. IN reality smaller chips will generally yield a number of chip candidates per wafers thats slightly more than proportionally to its size (up to a point), and larger chips will yield less than proportional. If you want more exact numbers, just use that calculator and redo the cost per die math yourself, but all the other assumptions are likely a much bigger variable.

In a chart:



edit: corrected yield calculations and per chip costs.

PCB, Power, Housing, etc missing to make a good speculation. A good point anyway. nice one.